Preparing for a family
* Article by Financial Coach Devan King
Many people believe there is no “perfect” time to have kids. Yes, we might prefer to have more income, a bigger home or a more flexible career before kids arrive but if we wait for all the stars to align we may be waiting a long time.
However, with proper planning, a solid strategy and some discipline, it is possible to create the right time for yourself.
Many people completely underestimate what is involved and how much it costs. There are so many expenses related to pregnancy, some obvious and some not so much. Finding yourself in a position that does not allow you what you want and need could really dampen the experience for you.
Without planning, you will find yourself in a position of constant stress. “My back is killing me but can I afford that massage” Will it impact anything else we need?
There are a few “must do’s” you need:
- Decide how much maternity leave mum and dad are going to take.
- Calculate how much income would be received during this leave. (Work/Child support etc.)
- Create a budget for this period of reduced income. Can you cut down anywhere?
- Create a baby budget for products needed when the baby arrives. Going online you are able to find recommendation lists on everything you are likely to need. Price each item from online baby store catalogues. As an estimate, you are looking at $7-$15k for everything you need such as a crib, clothes, pram etc.
- Decide the type of birth you wish to have and whether you wish to go private or through Medicare. The Medicare route is generally very low cost, just a few scans leading up to the birth costing around $500-$800. Having baby through your private medical scheme normally has a shortfall of about $10k you would need to plan for.
Calculate the total cost of the above.
- Budget after baby born – Income Received = X
- Baby products required to purchase = Y
- Plan for the unexpected costs (Approximately $2,000) – Z
- If birth is through health insurance $10,000 (Approximate gap)
- X+Y+Z+$10,000 = Total lump sum required for birth.
Establish a “Family” account for expected and unexpected expenses. This will either be a High-Interest Savings account or a share portfolio depending on the following. Work out how much you need to save on a monthly basis to reach your savings goal calculated above.
If your baby date is more than 3 years away, establish a share portfolio for the above family account. Monthly savings to this portfolio will help you grow your savings as much as possible through a diversified ETF fund. ETF’s are a low-cost investment that track an index of a stock exchange or share market. Invest in a fund or funds that have exposure to both Australian shares and international shares. Set a regular debit order to contribute your monthly requirement to this fund.
If your baby date is less than 3 years away, establish a high-interest savings account to save for the lump sum as you cannot afford to take any market risk in a share portfolio for a timeframe under 3 years. Use a savings account with a different bank to your normal checking account so that there is less temptation to spend these funds for things other than your goal. Make sure you set up a monthly automatic transfer from your checking account to this one so that it is automated. Do not try and manually transfer each month.
Review health insurance plan for a new family. You may be on a hospital plan only and wish to have day to day benefits once bub is born. If mum is going on maternity leave for 6-12 months and your combined income is going to drop considerably you may fall into a lower income band for the government rebate. Speak to your health care provider and this may reduce your expenses while mum is off work.
Review your risk insurance policies. More cover is likely required for both mum and dad due to having extra expenses with bub going forward. Make sure you have sufficient levels of Life, TPD and Trauma cover to support your bigger family and also make sure your income protection cover reflects your current income. (Do not leave this too late as TPD and income protection can be unavailable to mum in the later stages of pregnancy)
Top Tip: Wait for specials at the baby stores and purchase items on lay-by if the due date is far away. Savings is up to 50% and you take delivery when you require the items.